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Afternoon Note

Waiting on Nonfarm Payrolls

By Willie Walker, Senior Research Analyst
9/6/2018 1:58 PM
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ADP

The ADP National Employment Report for August showed private-sector employment increased by 163,000 jobs.   This was less than the consensus of 186,000 and below July’s 217,000.  Small businesses, those with less than 50 employees, saw a sharp decline, adding only 21,000 jobs in August, down from 52,000 small business jobs in July.  Medium-sized firms, 50-499 workers, added 111,000 workers and companies with 500 or more worker added 31,000. Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said "Although we saw a small slowdown in job growth the market remains incredibly dynamic."  Commenting on the slowdown in small business hiring, Mark Zandi, chief economist at Mood’s Analytics, said "Employers are aggressively competing to hold onto their existing workers and to find new ones. Small businesses are struggling the most in this competition, as they increasingly can't fill open positions."            

Change by sector and Industry:

The ADP report is a prelude to tomorrows nonfarm payroll report.  We will be watching wage growth in that report.  The all elusive wage growth has yet to present itself and would be a welcome sight with a Federal Reserve that is nearing neutrality.

Technology and energy are today’s weak links.  The Nasdaq is down over 1%, while the Dow hovers the flat line.  Micron (MU) and KLA-Tencor (KLAC) made cautionary comments at the Citigroup Global Technology Conference.  MU indicated that NAND pricing has declined in Q3.  The PHLX Semiconductor Index, SOX, is down 2.5%.  Social media stocks continue their decline after yesterday’s Senate hearing.

Energy is weighing on the markets after the Energy Information Administration (EIA) released its weekly crude oil inventory report.  According to the report, U.S. crude oil stockpiles dropped by 4.3 million barrels last week. Normally, crude oil would rally on a larger draw, however, investors are more focused on the gasoline inventories, which rose by 1.8 million barrels when the market was expecting a decline of 1.5 million barrels.  This unexpected increase has West Texas Intermediate crude trading lower by $1.38, 2%, @ 67.31.  Other factors weighing on energy is the weak demand out of China and emerging market demand concerns on the back of a strong U.S. dollar (USD).  A strong USD makes crude more expensive for overseas consumers. Couple the above with the fact that BofA/Merrill downgraded ConocoPhillips (COP) and Chevron (CVX) from Buy to Neutral, and you have the Energy Etf, XLE, lower by 1.75%.1.75%. 

Petroleum Report

Change

Estimate

Total Inventory

Crude Oil

-4,300,000

-2,500,000

401.5 million

Distillates

3,100,000

  +742,000

133.1 million

Gasoline

1,800,000

-1,500,000

234.6 million

Overall, the markets are hanging tough given the negative news. 

Breadth:

 


 

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